Bonus Depreciation in 2026: What Real Estate Investors Need to Know

Bonus depreciation is one of the most powerful tax tools available to real estate investors, and it just got more valuable. The 2025 tax law permanently restored 100 percent bonus depreciation, reversing a phase-down that had cut it to 60 percent in 2024. Here is what that means for your rentals in 2026.

What bonus depreciation does

Normally you deduct the cost of property over its useful life. Bonus depreciation lets you deduct a large percentage of qualifying property in the very first year it is placed in service, instead of spreading it out. For real estate, that applies to the short-life components of a building: appliances, fixtures, flooring, and land improvements, not the structure itself.

The percentage by year

The bonus percentage depends on when the property was placed in service:

The bonus depreciation calculator applies the correct percentage and shows the deduction and tax savings for your numbers.

How to find your qualifying property

A rental building depreciates over 27.5 or 39 years, but a chunk of it can be reclassified into 5 and 15-year property that is bonus-eligible. That is exactly what a cost segregation study does. Run the cost segregation calculator to estimate how much of your building qualifies.

An example

Say a study reclassifies 100,000 dollars of a rental into short-life property. At 100 percent bonus, you deduct the full 100,000 dollars in year one. At a 32 percent marginal rate, that is 32,000 dollars of tax savings in a single year, instead of a few thousand dollars a year spread across decades.

The trade-off

Bonus depreciation front-loads deductions, it does not create new ones. The depreciation reduces your basis, so more of your gain is recaptured when you sell, up to 25 percent. Many investors defer that with a 1031 exchange. Model both sides before you lean on a big first-year deduction.

Bottom line

With 100 percent bonus depreciation back for 2025 and beyond, pairing a cost segregation study with bonus depreciation is one of the highest-return tax moves in real estate. Size it up with the investor tax tools and confirm with your CPA.